CFA Level I: Short-Term Investments

Short Term Investment Yields

Short-term investments are investment assets that are meant to be held for less than a year. We calculate the yields on money of these assets using a discount yield basis. The difference between face value and purchase price is the discount interest.

  • Purchase price (discount purchase): Face Value – [(APR)(periods remaining/maturity)(FV)]
  • Proceeds (FV purchase): Face Value + [(APR)(periods remaining/maturity)(FV)]

There are three different quoting conventions to calculate the yields.

  • Money market yield = [(Face value – Purchase price)/Purchase price] x (360/day to maturity)
  • Bond equivalent yield = [(Face value – Purchase price)/Purchase price] x (365/day to maturity)
  • Discount basis yield = [(Face value – Purchase price)/Face value] x (360/day to maturity)

The bond equivalent yield is the closest yield for determining real return, however all three yields are standard convention.

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